Freedom Line Blog

Could ObamaCare’s “risk corridor” program become the health insurance industry’s equivalent of Fannie Mae and Freddie Mac – the federally funded entities that spent $180 billion bailing out banks who issued subprime mortgages?

Stephen Moore, the chief economist at the Heritage Foundation, thinks so.

“But insurance experts warn that [the risk corridor] program creates the same moral hazard problem for health insurance that we saw in the mortgage market with Fannie Mae and Freddie Mac,” Moore writes at Investor’s Business Daily. “The guarantee on bad mortgages encouraged bad mortgages. The guarantee against losses on ObamaCare enrollees encourages insurers to toss sound underwriting standards out the window. This didn’t turn out so well with Fannie and Freddie, which received a taxpayer-funded bailout of more than $180 billion after issuing subprime mortgages that should never have been written.”

Moore goes on to say that surveys of health insurance companies selling plans on ObamaCare exchanges say that the vast majority expect to receive a payment from the federal government to cover their losses. Estimates for the first year near $1 billion. And, since there is no cap to how much the feds will reimburse, there is no limit to how much money a company can lose and still expect a check from Uncle Sam.

Despite all this, the Obama administration is chugging ahead with plans to make payments under the risk corridor program without explicit congressional appropriations. Republicans are contesting President Barack Obama’s authority to do this – with an assist from a recent GAO legal opinion – but they should really train their fire on eliminating the risk corridor program as is. As with IRS tax credits, ObamaCare can’t survive without a convoluted shell game that hides the true cost of health care.

We’ll never get health care policy right until we can talk honestly about how it’s funded. Now would be a good time for the GOP to being that process.